Venture development organizations find multifaceted success within their regions

Venture development organizations (VDOs) increasingly serve as the Swiss Army knife of small business growth and innovation throughout the country due to their diverse range of entrepreneurial programs, direct financing options, and commitment to local economic development. Their unique roles in the entrepreneurial ecosystems and regional public-private partnerships have allowed for startup success despite the financial instability brought on by the COVID-19 pandemic. Likewise, annual impact reports and program outcomes reveal many VDOs are serving as well-equipped options for confronting the problems of race and gender inequity that exist within the entrepreneurial and innovation landscape.

By providing funding, experience, and resources for those who may be overlooked by the major banks and private investment capital pools, VDOs are widening the investment in innovation and commercialization through broader inclusion while simultaneously growing and diversifying the economy of their surrounding areas. In short, the versatility of the VDO model allows for multiple goals surrounding regional prosperity to be achieved by providing the agility and outcome-focus required for the organizations to find success in vastly different regions and sectors throughout the nation.  Some examples may help illustrate these conclusions.

One of the oldest continuously running VDOs is Innovation Works (IW), serving southwest Pennsylvania. For two decades, IW has helped spur the growth and success of risk capital flowing into Pittsburgh-area technology companies, while also building a more diverse and equitable startup community within the region. The latest third-party impact report for IW’s portfolio reveals 60 percent of the 212 companies that IW invested in during the past decade has a founder, leader, or owner who is a woman and/or a person of color. This compares with only 7 percent of the region’s businesses ownership including people of color.  And while globally women founders are struggling even more to receive investment, one-third of IW’s investments included women founders and owners, according to the analysis. In 2020, Innovation Works invested $6.7 million towards Pittsburgh area startups and together with venture capital, angel investors, and corporate investment, a total of $993 million was invested in the region’s technology companies in the past year.

The VDO model can work beyond the country’s largest metro regions when well designed. Since 1999 the Maine Technology Institute has provided loans, grants, equity investments, and support services to help grow Maine’s innovation landscape and diversify the state’s economy. Through a diverse array of investment options tailored to the specific needs of the venture, innovative small businesses such as STARC Systems have been able to establish a strong foundation within the state while working towards the commercialization of their products. The STARC Systems (a company based in Brunswick, Maine, that  manufactures innovative building materials) founders initially met at a Maine Technology Institute event and after an initial development loan of $500,000 from MTI the company has experienced 60 percent growth year-over-year and has raised $3.5 million in outside add-on investments.

The VDO method of regional development has also shown positive impacts for small town environments by merging investments in innovation with strengthening entrepreneurship. For example, SC Launch, administered by the South Carolina Regional Authority, provides South Carolina startups with mentoring programs, access to a network of experienced business professionals, and investment opportunities. The program has allowed companies located within smaller communities, such as Boyd Cycling, a wheel manufacturer in Greenville, South Carolina, to grow and innovate without relocating to the traditional venture capital investment hubs.

While success stories and positive investment metrics serve as a proponent for the VDO method for regional growth, an understanding of the shortcomings of private investment can also serve to reinforce the need for more VDOs throughout the country. With large scale investors such as major banks underserving the growing economic prospects of minority-owned businesses, VDOs have the opportunity to provide multifaceted support for these companies by providing seed financing, growing their business networks and providing access to experienced entrepreneurs. The result being an increased investment in innovation, entrepreneurship, and a more diverse economic sector throughout the region.

As the nation continues to chart its path out of the COVID-19 pandemic, the versatility of venture development organizations can play a variety of important roles in building a stronger and more equitable regional economy while investing in research, development, and commercialization throughout the nation’s innovation ecosystem.